Commercial Real Estate Loans

Built to Suit in Commercial Real Estate

Built to Suit in Commercial Real Estate

In a built to suit lease, a developer builds a property specifically for the use of one tenant. Generally, a tenant will locate a developer who is willing to purchase or ground lease land (or already owns land), and is willing to engage in a built-to-suit transaction.

Blend and Extend Amendments in Commercial Real Estate

Blend and Extend Amendments in Commercial Real Estate

In commercial leasing, a blend and extend amendment is allows a tenant to extend their lease and negotiate a new rate, merging, or “blending” the new and old rents. During periods of particularly high vacancy, commercial landlords will often offer agree to a blend and extend amendment that lowers a tenant’s rent, in order to keep their property occupied for an extended period of time.

Real Estate Debt Funds in Commercial Real Estate

Real Estate Debt Funds in Commercial Real Estate

For commercial real estate borrowers, debt funds often offer loans that banks can’t-- or won’t offer, including commercial construction loans, bridge loans/lease-up financing, and certain property rehabilitation and redevelopment loans. According to the Mortgage Bankers Association (MBA), debt funds originated nearly $70 in billion commercial real estate loans in 2018, around 10% of all CRE loans originated in that year.

Dark Shell in Commercial Real Estate

Dark Shell in Commercial Real Estate

A dark shell refers to a commercial property that is leased to a tenant without interior improvements, such as heating, lighting, interior walls, plumbing, or air conditioning. A dark shell is also sometimes referred to as a cold dark shell, a cold shell, a grey shell, or a base shell.

Equity Kicker in Commercial Real Estate

Equity Kicker in Commercial Real Estate

If a commercial real estate borrower seeks out a mezzanine loan, but does not want to pay an extremely high interest rate, the lender may agree to reduce the interest rate in exchange for a piece of equity in the project, referred to as an equity kicker.

Adaptive Reuse in Commercial Real Estate

Adaptive Reuse in Commercial Real Estate

In commercial real estate, adaptive reuse occurs when an older building is adapted for a different use than it was originally designed for. Adaptive reuse can have a variety of advantages for commercial real estate investors and developers. Primarily, this comes in the form of significant savings; demolition and new building construction can be extremely expensive, and adaptive reuse can lead to substantially lower construction costs.

Intercreditor Agreement in Commercial Real Estate

Intercreditor Agreement in Commercial Real Estate

In commercial real estate, an intercreditor agreement is an agreement between two lenders that stipulates the rights and responsibilities of each party. Intercreditor agreements are most commonly used when mezzanine debt is layered on top of a senior commercial real estate loan. Typically, the agreement creates a variety of safeguards that protect that senior lender’s interest in the property should the borrower default on their loan.

Infill Development in Commercial Real Estate

Infill Development in Commercial Real Estate

In commercial real estate, infill is defined as the development of unused land in urban areas. This commonly takes the form of developing an empty lot of land between two buildings, but can also involve the demolition of older or underused properties. Supporters of infill development believe that it makes efficient use of existing land and reduces burdens on municipal services, due to the fact the area is already being served by water, power, and communications infrastructure.

Recapture Clause in Commercial Real Estate

Recapture Clause in Commercial Real Estate

In commercial leasing, a recapture clause permits a landlord to terminate a lease early, and may also allow them to demand all or part of the remaining lease payments immediately. Recapture clauses can be triggered by a variety of events, but are are most often activated when a tenant closes their business and attempts to sublease the property.

Capital Stack in Commercial Real Estate

Capital Stack in Commercial Real Estate

In commercial real estate finance, the capital stack is the legal organization of all the layers of debt that are used to purchase, build, or renovate a piece of real estate. The position of a piece of debt in a property’s capital stack determines what the order that lender will repaid in the case of a borrower default or bankruptcy.

Submarket in Commercial Real Estate

Submarket in Commercial Real Estate

In commercial real estate, a submarket is a smaller part of a larger market. While a market may be a city or MSA, such as New York City, or the Dallas-Fort Worth-Arlington MSA, a submarket is likely to be a neighborhood or Suburb, such as Williamsburg, Brooklyn or downtown Dallas.

UBP: Unpaid Principal Balance in Commercial Real Estate

UBP: Unpaid Principal Balance in Commercial Real Estate

In commercial real estate finance, unpaid principal balance, or UPB, is the amount of a loan’s principal balance that has not yet been paid back to a lender. To calculate the UPB, a borrower cannot simply subtract their current mortgage payments from the initial loan amount; since they have also been paying interest, they will have to add this into their calculations.

LTC: Loan to Cost Ratio In Commercial Real Estate Loans

LTC: Loan to Cost Ratio In Commercial Real Estate Loans

The loan-to-cost ratio, or LTC, is used in commercial real estate to calculate the percentage a construction or rehabilitation project's loan amount represents relative to the total project cost.

Internal Rate Of Return (IRR) and Commercial Property

Internal Rate Of Return (IRR) and Commercial Property

An internal rate of return (IRR) is a calculation investors use to determine the likely rate of growth of capital (as it relates to both time and yield) for a particular commercial real estate investment opportunity.

Cash on Cash Returns For Commercial Real Estate Investments

Cash on Cash Returns For Commercial Real Estate Investments

A cash on cash return calculation determines the amount of annual income an investor earns on a piece of real estate when compared to the amount of cash invested.

What Is Defeasance?

What Is Defeasance?

Defeasance is a strategy that permits repayment of a commercial property loan on a property, to facilitate sale or refinance.